Are Any Apparel Stocks Worth Buying Now?

 | Apr 12, 2017 05:15AM ET

The U.S. apparel industry, one of the largest in the global market, has lately become nothing more than a puppet in the hands of consumers. The drastic change in consumer preferences, not only for designs and patterns of merchandise, but also shopping trends have left apparel retailers in bewilderment for ways to attract customers keep changing persistently.

In response to the challenging retail backdrop, retailers are allocating a large chunk of capital toward a multi-channel growth strategy focused on improving merchandise offerings and developing IT infrastructure to enhance web and mobile experience. Further, modernizing stores, developing fulfillment centers to enable speedy delivery, implementing an enterprise-wide inventory management system along with enhancing relationship with existing and new customers have become a prerequisite.

Additionally, apparel retailers are bringing in new capabilities like “Buy Online Pick Up in Store,” “Buy Online Return in Store,” and “Dressing Room” by Gap Inc. (NYSE:GPS) .

Despite all the brainstorming, apparel stores across the nation are crumbling due to soft mall traffic as customers increasingly prefer online shopping to store hopping. The increasing competition from e-tailers like Amazon.com Inc. (NASDAQ:AMZN) , which is expanding on apparel lines, has been a rising concern for the apparel store operators.

In 2016, the industry saw bankruptcy filings from many teen retailers including Pacific Sunwear, Wet Seal, Delia’s, Aeropostale and Quiksilver. Further, many have resorted to closing stores to tackle weak performances including the likes of Macy’s Inc. (NYSE:M) , Kohl’s Corp. (NYSE:KSS) , Men’s Wearhouse and Finish Line Inc. (NASDAQ:FINL) .

Fate of the Apparel Industry

As evident from the above discussion, the apparel industry is not doing well given the decline in foot traffic as well as the rising competition in the space. This is well reflected by the industry returns delivered in a span of one year.

At Zacks, we have two separate industry classifications for the apparel industry including the Textile – Apparel Manufacturing . The basic difference in this classification is that the first one includes apparel retailers, while the second comprises apparel manufacturers.

Coming to the performance, the Zacks categorized Retail – Apparel and Shoes industry lost 22.8% in the past one year, while the Zacks categorized Textile – Apparel Manufacturing industry declined 16.2%. Both the industries have underperformed the 16.7% growth registered by the S&P 500 index in the same period.